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Saturday, December 31, 2011

The Thrill Is Gone

Yesterday marked the final business day of 2011.  Ever since 2000, PERS retirees and future retirees have been watching and waiting for the courts to unravel, untangle, and to clarify a variety of situations that threatened the hard-earned pensions of public employees in Oregon.  Starting with the City of Eugene case, filed in early April of 2000 up until December 30, 2011 - nearly 11 full years - retirees have lived in a state of perpetual anxiety that some component of their pensions would disappear either before they had a chance to retire, or even afterwards.  The final gavel on all the litigation surrounding the City of Eugene case, the Legislative reforms of 2003, the "infamous" settlement agreement between the City of Eugene plaintiffs and PERS, and PERS' hamfisted attempt to collect "overpayments" from those members who retired between April 2000 and April 2004 ("window retirees") came down yesterday.  The Oregon Supreme Court rejected the review of its own verdict in the "Robinson" case -upholding its own verdict - and it closed the door on all but a small piece of "White" case - that which charged PERS with a breach of its fiduciary responsibility in signing the settlement agreement.  The string has run out; the collection efforts for the remaining "overpayments" from the 1999 "over credit" will be permitted to go forth, and by Spring of 2012, "window retirees" will either need to write PERS a check to clear their accounts, or begin to see their monthly benefit reduced by some small, but unknown, amount in perpetuity.  I haven't decided what I am going to do.  It grates me no end to have to see my benefit reduced for my life and the life of my beneficiary; on the other hand, I'm in no mood to hand over a large sum of money to a bunch of people who simply don't deserve the money.  I did nothing wrong and I submit there was no error in my benefits regardless of what politics and the courts have said.

The only heartening thing about the Supreme Court's ruling in the White case is that the court remanded back to Judge Kantor the matter of PERS' transfer of $61 million from the contingency reserve into the accounts of the 8 employers responsible for the City of Eugene case.  The Supreme Court ruled that this was not a condition of the settlement agreement and that the amount bore no relationship to the amount the employers may have been overcharged as a result of retirements that occurred from the 8 employers during the period in question.  The Supremes ordered that the amount be actually computed, not just estimated, and this will likely result in higher employer rates for the employers who benefited from this arbitrary transfer of money.  This means that, hopefully, the City of Eugene plaintiffs will finally get hoist on their own petards in all of this.  While it was a small victory for members - one that won't make any difference to any individual - it at least punishes PERS and the City of Eugene plaintiffs for what appears to me to be a form of collusion.  Too bad there isn't any worse punishment.  But, I'll take a victory in any form at this point.

The last decade's worth of litigation has been extremely costly to all parties and PERS has played both sides of the street for too long now.  The time has come for this gamesmanship to cease and desist.  PERS must decide NOW whether it is a trust for the benefit of its members, or a slush fund that benefits employers.  We may all be stakeholders in the system, but the legislative mandate for PERS is clear.  It exists solely and exclusively for the benefit of members of the system.  The moment it ceases to exist for that purpose alone, it makes a mockery of trust law, and makes the notion of a fiduciary responsibility to the members a joke.  Finally, it is absolutely clear that PERS has become so heavily influenced by politics that it is impossible to get any sort of a fair hearing in Oregon.

From the very beginning of the decade, starting with the City of Eugene case, it has been clear that politics and economics would take priority over statutory duties.  The courts have been influenced by the ravings of the media, the media has pounced on any small or large PERS story with the gusto of a ravenous coyote.  And the citizens of Oregon, who have eaten up the mainstream media's reports like the starving in Ethiopia, have no interest in the truth of how PERS came into being, what its functions are, and who it is supposed to serve.  The public has swilled up the big lie that "…all money in PERS belongs to them, the taxpayers" and not to the people who actually earned and saved that money.  I hope that the 2012 Legislature will put an end to this bloodlust by passing a bill that declares retiree personal information, including benefits, is completely off limits.  There is no compelling need to know much of anything except the amounts of benefits, not the specifics of who gets them.

This is my last post for 2011.  While I wish I could have ended the year with cheerier news, I guess the "good" news is that 11 years of litigation have finally come to an end.  Now, let's hope the Legislature has the good sense to leave the PERS system alone for awhile and let it recover from these debacles.

I wish for all to have a safe, happy, and prosperous New Years.  I say that without irony.  I hope that the financial markets stabilize and people can get back to enjoying their retirements.  Some of us have wasted nearly 11 years hoping to get some closure on the crap of the past decade.  At last we have it; it is time to enjoy what time we have left.




Wednesday, December 28, 2011


OK. A bit of an inside joke for those who know Jimmy Buffett music.  Mea culpa, mea culpa mea maxima culpa.  In my last blog post, "Dark Side of the Moon", I made an error that Ted Sickinger of the Oregonian took the time to point out.  In the case of the "true up" of Mike Bellotti's final PERS benefit, the mismatch between his account balance plus the employer match is made up by the Employers' Rate Reserve fund, which is charged to all employers in the rate class, not just the University of Oregon. This means that, in Bellotti's case, the way the University of Oregon computed his salary (including all the top ups from outside sources) ended up strongly underestimating what his final pension benefit would be.  Thus, when Bellotti retired the bill for that underestimate is shared amongst all the employers in the State pool regardless of the source of the money.  This leads to a whole series of interesting questions about how things like taxes were handled on this income when it was being earned and how the University of Oregon and PERS could have been so off the mark in funding his benefits.  After all, if Bellotti's endorsement income and Nike income all passed through the University and some of it on to Bellotti, wouldn't the University have paid PERS premiums on the money at the time it was earned.  Or does this count as income and Bellotti is expected to pay his own taxes on it, but at the end the University of Oregon saddles other employers with part of the bill?

I stand by the rest of my piece, but the "true up" was most definitely wrong.  Because the University of Oregon only bore a small part of the bill for Bellotti's retirement, there is a scandal there.  But the scandal belongs at the feet of the University of Oregon, not PERS.  PERS just administers the system it is given and has to pass through the rules as they are applied.  I don't know when individual employers were let off the hook for these types of errors and omissions, but it had to be after 2002.

One thing I find quite curious in this whole matter.  The IRS limitation on pension income passed in 1994.  It applied to all working people regardless of when they were hired.  I know this personally because my wife, who was hired in the same year as Mike Bellotti by a private employer, was hit by this and continues to be affected by it until she retires.  There was a limit in existence prior to 1994, but at the time it exceeded my wife's salary.  The change in 1994 set the limit back to $150,000 and increased by $10,000 chunks until it was at $200,000.  At that point, the limit went up in $5000 chunks where it rests at $245,000 today and will be $250,000 next year.  What I don't understand is how anyone who retired after 1994 could have escaped that limit, as Bellotti and all PERS retirees hired prior to 1994 seem to have been.  Call it envy or call it curiosity.  What IRS ruling did PERS get that permitted Bellotti to draw a pension of $500,000 on salaries that weren't eligible beyond $245,000.

I leave that for the investigative reporters in the group to figure out.

Sunday, December 11, 2011

Dark Side of the Moon

Apologies to Floyd.  As we predicted, the folks at the Whoregonian could not wait to start their muckraking about individual PERS recipients within weeks of the first data release.  While the object of their rectal examination is former University of Oregon coach and Athletic Director Mike Bellotti, the reporters have not been satisfied to wait until the second data release (March 9, 2012) to start pursuing their charges of some sort of fiscal shenanigans with Bellotti's outside benefit.  You'll get no argument from me that Bellotti's benefit needs some scrutiny, but many of the answers could have been obtained with the second release of data.  Moreover, it proves the point that the analysis could have been done without exposing the names of any individuals since the reportwhores were bound to make information requests anyway.  If I had seen a $41,000 per month benefit showing up at the top of the list, more than $10,000 higher than the number 2 on the list, I'd probably start asking some specific questions about who that individual was.  And so they would have found out anyway with a special information request.  And in my world, a special information request for a name would have been a far better solution than the shotgun, throw every name against the wall to see what sticks, approach.

So what have we learned.  Well, we've learned that there are lots of unusual benefits that got to be counted as salary for PERS benefits than any of us could have imagined or any of us have access to.  It is nice to know that the use of a car, a country club membership, and certain kinds of endorsements can be run through the University and then be valued for salary purposes and included in final salary calculations.  What we don't know is exactly who paid for those benefits during Bellotti's career.  Duck boosters (no tax money), Phil Knight (no tax money), Duck Athletic fund (ticket sales and sales of merchandise, no tax money).  So, to the best of our knowledge, only a small amount of public money was used to pay Bellotti's salary while he was working.

To get to the final retirement benefit we run into another problem.  There is no question that Bellotti's actual salary did not generate the kinds of income to PERS to have covered a combination of a $2.5 million account balance and a $2.5 million employer match to fund the Full Formula benefit.  According to PERS, the money needed to fund Bellotti's stream of retirement payments amounts to $5 million dollars throwing off 8% interest for Bellotti's life.  Any mismatch between Bellotti's actual account balance (maybe $600,000 at retirement) and the employer match (another $600,000 give or take), would have to be made up by the employer at retirement so that Bellotti's working balance would make it to the initial $5,000,000.  This raises another question:  WHO actually paid the the "true up" to PERS?  We know it was the University of Oregon, but we don't know where the money came from.  I can guarantee that it DIDN'T come from taxpayer dollars.  I'm willing to bet that a donor (Phil Knight? again) or the Duck Athletic Fund (more donors) ponied up additional contributions to the DAF so that Phil's true-up payment could be made.  Thus, we have it likely the bulk of the money used as the corpus for Bellotti's pension DID NOT come from taxpayer money.  We don't know this for certain because the folks at the local rag didn't bother to ask where the money came from.  A straightforward question:  did any of the money required for the Bellotti "true up" payment come directly from taxpayer sources?  would have answered the question.

The only question I have is the curious and slightly unsavory appearance of the ex-Mrs Bellotti picking up nearly $50,000 per year as the result of a divorce degree with Mr. Bellotti, and then continuing to draw that money even after she and Mr. Bellotti remarried sometime later.  It does have a slightly funny smell to it.

But the thrust of the O's article is that the whole matter of Bellotti's pension smells funny and, by implication, there must be a bunch of other smelly cases too.  I'd hazard a guess that Mr. Bellotti's case is unique as all the other coaches and AD in the system were hired after the IRS salary limitation came into play.

So I say to the Oregonian.  Hope you enjoyed your trip to the dark side of the moon.  You probably won't find too many other cases like Bellotti's, if you find any at all.  When you scramble back into the light, I expect that you'll be left with only this story to tell.  The rest of us don't have tricks like these employed.  So, you've left 105,362 of us exposed just so you could tell the (non) story of Mike Bellotti.  And I am willing to bet that the Mike Bellotti story will result in a bunch of unnecessary sturm und drang at the next Legislature that will end up hurting a bunch of innocent people unnecessarily.  Virtually none of us have guardian angels like Uncle Phil.

Friday, December 09, 2011

One of Us Cannot Be Wrong

OPB is going for a second helping from the PERS trough on Tuesday December 13, 2011.  It is a follow on show to the December 5 episode featuring Dennis Thompson of the Salem-Statesman Journal.  Paul Cleary, Executive Director of PERS, yours truly, and one other former PERS member will be "guests".  Cleary will be in the studio, while the two of us commentors will be in the peanut gallery from the phone lines.  I won't have to call in.  They will call me and give me my 15 seconds of fame (or not).  Paul will, no doubt, be talking about the facts of PERS; hopefully those illuminated by the semi-annual publication called "PERS By The Numbers", which the Statesman Journal editor, Dick Hughes, seems to have just discovered although this publication has appeared twice annually since 2005.  It is really worrisome when the MSM cannot discover a document that would have answered virtually ALL questions since it first came into existence.  No wonder most of us have little or no respect for the MSM.

This follow on show on OPB and "Think Out Loud" is the result, I'd like to think, of the loud protests evident on the OPB web site about having Thompson on before any facts were presented about the PERS system.  While I am optimistic that Cleary and I can present facts that will allow the public to understand better how benefits come into existence in the PERS system, I am pessimistic because my experience has shown that most people who have an ax to grind with the PERS system don't understand a whit about it and are, to steal words from my wife, "invincibly ignorant".

My counterpart on the show will be someone who can't understand why his friends or neighbors, teachers, can possibly get or deserve their $72,000 annual benefit.  I make considerably more as the nosy among you have probably figured out, but my benefit can be explained away easily.  My "opponent" on the show is wrong and I hope to be able to show him why.  Of course, "history is obdurate" so I may not be successful in convincing him or anyone else who simply refuses to know.  A friend from a past life used to say "people would rather believe than know".  I think truer words have not been spoken.

Tune in for yourself on OPB radio to Think Out Loud Tuesday December 13, 2011 at 9:00 a.m.  The PERS segment is scheduled to be at the top of the hour.



Sunday, December 04, 2011

Don't Think Twice, It's All Right

The usually reliable radio show, "Think Out Loud" carried on Oregon Public Broadcasting will air a show tomorrow (December 5) to discuss the outing of PERS retirees and their benefits.  The ONLY guest on the show to the best of my knowledge will be Dennis Thompson, the flack for the Salem Statesman-Journal, who has written about PERS issues for the paper for the past several years.  Thompson is a comparatively fair guy who tries to print the truth occasionally, but mostly he gets caught up in the rhetoric about PERS where facts take a back seat to opinions.

I am a Cornerstone member of OPB.  That means I donate more than $1000 per year to public radio.  Part of my expectation for such a donation is that OPB present fair, unbiased, and objective journalism in their programming.  The "Think Out Loud" show tomorrow fails on ALL those accounts.  Thompson has already demonstrated his bias and lack of objectivity, and only barely meets the standards of fairness whenever he's been backed to the wall and has had to correct something he's published.  There are many people in Oregon, myself included, who could easily provide OPB with an effective counterpoint to much of what Thompson has tried to argue about the shortcomings of PERS.

As a public service, I'm going to offer some FACTS about PERS that Mr. Thompson surely won't present because they would contradict his opinion about the system.

  • The MEDIAN PERS benefit is $1902.66 (less than $24,000 per year).  The median is used here because it is a robust statistic and a clearer indicator of the true state of PERS than the average or mean, which is something above $2300 per month.  The average is strongly affected by the outlier benefits of people like Mike Bellotti.  If you averaged my salary, my middle daughter's salary, and Bill Gates' salary, you'd come up with a figure of over a billion dollars per year.  Is that an accurate description of the average salary?  Of course not.  You'd argue that Bill Gates' salary exerts such a strong influence that it produces a misleading average.  Well, the same is true with the PERS statistics.  Out of 105,363 currently listed retirees, slightly more than 800 receive benefits in excess of $100,000 per year (less than 1% of the whole population), while there are about 13 members whose benefits exceed $200,000 per year.  Even averaging among the 13 members with $200,000+ per year pensions would be heavily weighted by Bellotti's outsized benefit.  So, there is no reliable way to estimate a measure of the "average" PERS benefit without encountering the effect of less than 1% of the population that leverage the average up by nearly $5000 per year.


  • Concerning the 6% pickup.  Yes, this benefit was negotiated in 1979 in lieu of a pay raise that would have been in excess of 10% due to 16% inflation.  While pay raises resumed some years later, two things seem to have been forgotten.  The pickup in lieu of a pay raise was just that.  Nobody got a pay raise when that happened.  Salaries lagged behind and when pay raises resumed they were always less than the current rate of inflation and never restored the 16% lost to inflation in the year of pickup.  To suggest that the pay raises that resumed somehow negated the need for the pickup is to fail at basic economics.  The only way that the pickup could have been eliminated would have been to give the pay raise that the pickup obviated.  Since that never happened, the lost purchasing power of public employees still getting the pickup has never recovered.
  • Employer rates are going to bankrupt Oregon.  This has been one of pet peeves since at least 1994.  During the go-go 1980's and 1990's the employers were banking as much as the employees were on their PERS accounts.  Because high earnings tend to lower employer rates, the employers failed to plan for the day when the gravy train would stop.  They took the low rates, failed to bank the savings, and then had to beg PERS for an installment plan to amortize rate increases over a longer period of time.  When even the installment plan didn't work, many employers went for Pension Obligation Bonds essentially betting on the same forces that got them into hot water in the first place.  The rates the employers are paying now are the result of employer greediness and spending patterns, the PERS Board's feeling sorry for the employers, and sheer stupidity borrowing to pay off what amounted to another loan.  The employer rates can be blamed almost exclusively on the employers.  Nothing PERS members did or could do caused the predicament the employers are in today.
  • Taxpayers are entitled to know PERS benefits because they pay the salaries.  Yes, this is partly true, but not entirely true.  Let's take Higher Education as an example.  Higher Education's general fund budget comes to less than 10% of the operating costs of each institution.  Therefore, taxpayers are responsible for 10% of the salary budget.  At best, they are entitled to know approximately 10% of my salary.  When the issue comes to PERS benefits, the people receiving them are no longer receiving taxpayer money.  Roughly 25% of the money coming in to PERS comes from general fund sources.  The remaining money is from investment earnings.  So, my retirement benefit derives from 10% of my salary and a fourth of that to PERS, and the remainder from non-taxpayer sources.  I'd gladly reveal the 2.5% of my PERS benefits that can be traced back to taxpayer sources.  My academic salary came from grants, contracts, tuition, fees, indirect costs on grants and contracts, and only a small fraction from the taxpayers.  Thus, my retirement benefits began from those same sources, and then investment income funded the rest.  This argument holds true for many agencies that have a source of income other than the state.
  • Whose money is the 6% pickup.  It is mine.  PERS and my employer always treated it as part of my salary and when my PERS benefits were calculated, my final salary always included an additional 6% as the pickup.  If there was ever any doubt about whose money that was/is, this is the needed confirmation.  If Thompson, or anyone else, wants to propose eliminating the 6% pickup, just remember that it would be a 6% pay DECREASE, plain and simple.  It isn't a matter of saying "well, we eventually gave you raises didn't we"?  Nope, not at all.  We never recovered any of the purchasing power lost to that tradeoff.  Taking it away now, or making employees pay it instead (the same thing, in effect) is a salary decrease plain and simple.


So, I challenge my friends at OPB who've happily taken my Cornerstone gift every year for the past four or five years to honor my expectation of "fair, impartial, unbiased".  Failure to deliver on this basic promise will cost you my cornerstone membership, and possibly more.  I wouldn't spend too much time thinking about it.  The show airs tomorrow.  If you have to think about it a second time, you're done from this household.  I'll continue to listen, but you won't get those membership dollars from me.